It’s always nice to receive an Income Tax Refund credit in your bank account. Given that most of us receive what we earn after the tax amount has been reduced, it almost feels like free money – but it is not. A refund is merely the excess tax that we have paid the government, which is being returned to us. Refunds are especially useful when you’re a freelancer with an inconsistent income, so resist the temptation to spend it and instead, tuck it away for emergencies.
An income tax refund isn’t applicable to everyone and anyone who has some TDS in their name though. Here are five important things that you need to know about them –
1. It doesn’t matter if you eligible for a refund, you won’t get it unless you file your returns
Getting an income tax refund isn’t as easy as saying, “Oh there’s some TDS in my name and the excess will come back to me.” It won’t. You need to file your return and verify it if you want your refund back. The good news is that the department has made it easy to file your returns online, by yourself. So if you haven’t filed your return yet, do it now. Especially because there’s a hefty fine of Rs.5,000/- for those who file late.
2. Verifying your return online leads to quicker refund processing
I work in a Chartered Accountant’s office that files and keeps an eye on a number of returns that are filed in different modes. We have some clients who opt to print, sign and send their Income Tax return acknowledgements to the Central Processing Centre in Bengaluru for verification, and some others who prefer to verify their returns through AADHAR OTPs. What we have noticed, consistently, is that those who verify their returns online, receive their refunds much quicker than those who opt for snail-mail.
3. You can check the status of your refund, online
If it’s been a few months since you filed your return but you still haven’t received it, you can check the status of your refund in the Income Tax E-filing Portal. Log in to your account, click on “My Account”, where you will see a dropdown menu and can select ‘Refund/Demand Status’. Once you click on that and select the year for which refund is due to you, etc, you can see the status of your refund. It can be ‘processing’, in which you need to wait a little longer or ‘Already paid, check with banker’, in which case you need to take a look at your statements to confirm. It is also possible that the refund ‘failed’ because your ECS/Online Transfer details were incorrect. If this is the case, you will have to raise a “Refund Reissue Request” – a link to creating the request will be next to the status in case it was one of failure.
4. Your refund can be adjusted against Outstanding Tax Demand!
If there is tax that the department insists you pay for one year and a refund in another, the department can potentially adjust one against the other – but don’t panic just yet! The department cannot do so without intimating you first. You will receive a notice under section 245 of the Income Tax Act, detailing the amount of tax that is payable by you, the refund available and how much the Assessing Officer wants to adjust. Instructions on how to respond to the notice are clearly stated in the notice. If the amount that is stated as Income Tax payable is not true or is an amount that has been calculated incorrectly by the department, you can disagree with the demand and filing your disagreement online with proper reason and evidence. If you get a notice under section 245, try to respond as early as possible (you have 30 days to respond) to avoid the department assuming your silence amounts to acceptance and adjusting your refund.
5. Beware of Income Tax Refund Scams
There has been a spate of emails recently being sent to unsuspecting tax-payers stating that their bank details need to be provided for their refunds to be processed. These emails look very authentic, with only minor slips, for example, the email address might miss a letter from original address, making them hard to spot. The Income Tax Department will never send you emails asking for bank details outright and changing bank details for the purposes of refund involves going through your income tax dashboard. So if you receive an email stating that your bank details are required, do not click on the link in the email.